Monday, August 1, 2011

Why “Cherry-Picking” Is Good For Commuters

Date: 1 August 2011

Transport Minister Lui Tuck Yew argues that the National Solidarity Party’s proposal for more competition in bus services would lead to “cherry-picking” of lucrative routes by multiple operators and hence be negative for commuters.

Lucrative routes are lucrative because demand is high, and more commuters are packed into each bus. “Cherry-picking” by multiple operators would mean more buses along these routes leading to shorter waiting times, less congestion in the buses and hence more comfortable rides, and more competitive pricing. With greater supply, these “lucrative” routes would become less lucrative. The “cherry” could swiftly turn into a “lemon”, forcing inefficient players out, and slowly turn into the common “apple”. Such is the magical fruit kingdom that boring people like me call the free market.

Meanwhile, the licence fee for the “lucrative” routes can be used to subsidize the operation of non-profitable routes, to ensure the continuation of these services.

Greater competition can lead to more differentiated services coming into the market to serve different levels of expectations. Only by better meeting the needs of the commuters can we persuade more of them to forego private cars and opt instead for public transport, thereby relieving the growing congestion on our roads. Public transport, with its higher passenger density, is a more energy efficient and hence greener mode of transport compared to private cars. Let us encourage its development in all the ways that we can.

It is disappointing to hear the same old reply from a different Minister. The political renewal that Singaporeans want to see is not just a younger Cabinet, but newer ideas and innovative approaches to problem solving.

Public Transport: Why the PAP and WP positions fall short of commuters’ needs

Date: 26 Jul 2011

There has been much debate over our public transport system lately. Public unhappiness over fare increases stems from dissatisfaction over the level of service in our public transport, primarily over issues of under-capacity and the lack of any alternatives for the bulk of our population.

The Workers’ Party proposes the nationalization of public transport. The People’s Action Party on the other hand advocates the status-quo. But it should be apparent that the status-quo is not working. The PAP needs to snap out of its complacency.

The WP’s proposal to nationalize public transport however would not solve the problem of under-capacity. It is unrealistic to expect state-run organizations, usually large and cumbersome, to be able to respond speedily to rapid changes in demand. We need only look at our public housing, public hospitals and polyclinics which are similarly plagued by under-supply to realize that.

What is needed then is more competition. Theoretically, we have two companies “competing” against each other in bus and MRT services. However, since there is no duplication in their area of service, commuters have no real alternatives. Thus we effectively have two monopolies.

First, we need to consider bus services and MRT services separately.

MRT Services

It is not practical to expect full privatization and competition in MRT services due to the infrastructure and huge capital required.

But partial competition can be introduced. The government can retain ownership of the major fixed assets – tracks, stations and trains - and sub-contract out the operations to private companies via tender. SMRT and SBS Transit should not have certainty of operating rights, but rather would have to tender for the rights at regular intervals, in competition with each other and with other companies that may be set up by former employees or foreign operators. Each line (North-South, East-West, North-East, Circle, Downtown, various LRTs) can be tendered out separately or bundled. Tenders will be awarded based on service levels and cost. The Government charges fares at a level sufficient to pay the sub-contractors.

Unfortunately, while this arrangement provides incentives for efficiency and cost control, capacity would still be determined by the Government and hence cannot be as responsive as private operators. It is an inherent weakness of the MRT system that capacity cannot be increased rapidly. We therefore need to rely on our bus services to be more responsive.

Bus Services

Bus services should be liberalized. We need multiple private bus operators who are smaller, nimbler and profit-seeking, and who will respond faster to changes in demand. If demand increases rapidly, profit-seeking entities will eagerly increase supply just as rapidly. Slow movers will lose market share.

Routes should be centrally managed by a transport authority, and every private operator, regardless of size, should be free to apply for licenses to ply any of the routes, making their decisions based on business considerations. Operators will either ply existing established routes or propose new ones to the transport authority. Bus services may also duplicate MRT routes to provide indirect competition to MRT services, and to meet demand in excess of MRT capacity. Capacity in bus services can be expanded far more rapidly than that of MRT services.

Let market forces determine the supply and set the fares. The government’s role in bus services should be limited to:
i. setting the standards for safety and service,
ii. managing routes,
iii. disseminating information on bus routes and ridership numbers,
iv. gathering commuter feedback, and
v. licensing.

In addition, the Government should fulfill its social responsibilities by providing the necessary infrastructure and subsidies for
i. non-profitable but essential routes (which can be funded by bus
licensing fees),
ii. full-time students, elderly and disabled, and
iii. low-income earners and families.

With this model, we can move towards a more responsive transportation sector driven by market forces, with the incentives to innovate and cut costs, while meeting our social obligation of ensuring affordability for those with lower incomes.